Health as a StrategyOctober 26, 2012

2

Safeway is the 2nd largest grocery chain in North America

• $41 billion in sales

• 180,000+ employees

• 1,600+ stores in operation

• 30+ manufacturing plants

• 18 distribution centers

• 2-3% operating margins

• Distributed workforce with operations in 22 states & D.C.

• Extraordinary educational and work process diversity

• Non-union employees in all operations covered by Safeway’s plan

Safeway Stats Operating Implications

3

In 2005, Safeway’s benefits expense exceeded pre-tax profit

100 106

Profit Before Tax Healthcare

• Aging Population• Rising Costs• No clear focus (yet) on

improving employee health• Healthcare growing at

2-3 x sales

Health Benefit vs. Income (Indexed)

Underlying Trends

Conclusion: Business as usual would compromise viability

%

4

Several causes were driving escalating healthcare costs• Plan design lacked incentives to encourage healthy

behavior

• Providers of healthcare are less involved and not incented to encourage healthy actions

• Employee’s contributions and out-of-pocket costs did not reward their health improvement efforts

• Cost and quality information was largely absent, so employees could not easily shop for care

5

Our solution was a holistic program, focused on health and fitness

• Encourage employees to think of all healthcare spending as their money

• Motivate employees to help them make healthier choices and actions

• Drive wellness and disease program utilization

• Support employees with education and environmental reinforcement

6

We made improving employee health a core business strategy – with dramatic results

8.1%

2.2%

USA Safeway

• Transparency tools / consumer choice

• Shopping incentives in plan design

• Behaviors become healthcare currency

• Surround sound support of health & fitness

Annual Healthcare Cost Growth*2005-2011

Safeway HealthcareProgram Innovations

Cumulative Value = $315M

*Per-employee all-inclusive costs: Employer contribution + Employee premium + Employee out-of-pocket costs

7

Safeway’s Influence on LifestylePercent of Participants Passing in 2011 who did not Pass in 2008

Employees and Spouses

8

Strong BMI Improvement

Population* in 2008 # %

Obese III 276 3%

Obese II 497 5%

Obese I 1,293 13%

Overweight 3,366 34%

40% 30% 20% 10% 0 10% 20% 30% 40%

Change by at Least One BMI Category 2008-2011

18%

27%

32%

32%

13%

14%

17%

NM

Slipped > 1 BMI Gr Improved > 1 BMI Gr

Total at Risk 5,432 55%

*Same Healthy Measures participants (9,772) for all 4 years

9

Member Blood Pressure

Measurement Year

Average Median

2008 126 / 79 126 / 79

2009 123 / 78 122 / 79

2010 120 / 76 120 / 77

2011 121 / 77 120 / 78

Systolic / Diastolic

10

Member Median Cholesterol*All Members Members not Passing in 2009

2009 2010 2011 2009 2010 2011

188

184183

* Changes are statistically significant

Standards: (1) Safeway Pass: 220 (2) National Ideal: 200

11

We accomplished these results by re-engineering our health benefit

Plan Design

Work Environment

Employee Engagement

Education& Support

Leadership

Safeway Associates

• Executive Leadership & Commitment• Embedded in Local Management

• Market-Based Plan• Targeted Pricing• Rewards for

Healthy Behavior

• Local Food Offering • POS Calorie Labels• Fitness Access• Health Awareness• Workplace Design

• Local Health Programing

• Condition Support

• Pricing Tools

• Engagement and Rewards

• Peer & Social Programs

12

We focused on four motivating factors for positive employee change and engagement

Social: Peer encouragement to pursue healthy behaviors

Financial: Rewards for positive performance

Intrinsic: Personal motivation, interest, and self-development

Leadership: Organizational leadership, management encouragement and permission

13

Leadership plays crucial roles …

Management Roles• Building program awareness

and support– Involvement defines high-

priority initiatives – Communication implies

permission and support• Maintain engagement

– Cheer for better performance than peers

– Model Behavior• Adhere to voluntary

commitment

Structure

Corporate

Division

District

Store

14

… supported by a comprehensive and diverse communication program

15

Individual Participant activity can be aggregated to the division/unit level.

These roles are designed into our programs

16

Weekly report-outs maintain continuity

District Store Activity Hours per Participant

D2 2561 111.6

D1 3582 106.8

D4 2587 106.5

C1 1066 104.1

D4 3622 86.9

District Store Activity Hours per Participant

C3 2471 80.6

D4 1786 73.0

D4 3614 70.9

D2 1784 70.2

D1 2578 68.3

Total Retail: 26.8 Hours per ParticipantBackstage: 49.2 Hours per Participant

Total Texas: 30.0 Hours per Participant NorCal D7: 40.1 Hours per Participant

17

The organizational structure also plays a key role in our promotional efforts

17

Company ($$$ to charity of choice)

Division/Region (JS Challenge winner

and end-of-year winner)

Employee(All points contribute to employee account,

Division and end-of-year goal)

18

Multi-tiered financial incentives to encourage employees across multiple dimensions

Engagement

Improvement

Support

• Multi-level incentives to reward program participation

• Individual rewards for program completion• Team rewards for group participation

• Tiered rewards/recognition for levels improvements (e.g. 5%, 10%)

• Encouraging reasonable goal setting

• Team leaders and local champion rewarded, as well• Focus on keeping enrolled employees engaged

19

Underpinned by our behavioral rewards program

• A voluntary program, encouraging employees to know their risks

• The program rewards employees who achieve healthy results and creates incentives for employees to become healthier

• Paid via premium discounts or health investment accounts• Five incentive and retroactive rebate opportunities:

BMI Blood Pressure Cholesterol Hemoglobin Tobacco

Free

20

Jumpstart Engagement program designed to be social & support participants

• Team structure supports weekly check-ins and encouragement

• Encourages local competitions

– Deli vs. Bakery– Store vs. Store

• Enables employees to encourage other employees

Local Champions

Team Captain Team Captain

Team Members

21

Front-end portal allows for customized messaging and steerage to resources.

Jumpstart Gateway Portal

Closed/Private Social Network allows for peer-to-peer interaction, challenges, motivation, etc.

22

Appealed to individual engagement on many levels Focus on making programs fun and accessible

Developed a better social fabric in the work environment

Offered variety of ways to improve and learn about health to increase personal relevance

Platform for employee input

Selected charitable/ philanthropic contributions

23

Jumpstart – Member Dashboard

24

Key Factors of Safeway’s Success

• Health as a Strategy = Leadership Commitment

• Holistic Program • Multi-point support and

encouragement• Aligned incentives• Employee accountability

8.1%

2.2%

USA Safeway

Annual Healthcare Cost Growth*2005-2011

Cumulative Value = $315M

*Per-employee all-inclusive costs: Employer contribution + Employee premium + Employee out-of-pocket costs